SAC Capital said to raise hedge fund bonuses amid insider probe

Published 9:08 pm, Wednesday, January 9, 2013

Bloomberg News

SAC Capital Advisors is raising bonuses for its portfolio managers by 3 percentage points to help retain employees as the U.S. government's insider-trading probe moves closer to Steven A. Cohen's $14 billion hedge fund, according to a person familiar with the matter.

The bonus increase announced Tuesday will be paid to equity, macro and commodity portfolio managers, said the person who asked not to be named because the information is private. The firm's portfolio managers are typically paid an annual bonus of about 15 percent to 25 percent of the profits they generate from their investments, according to another person.

"This raise should help to allay fears for some SAC employees," said Michael Karp, chief executive officer of Options Group, a New York-based recruiting firm. Hedge funds typically pay bonuses of about 10 percent to 12 percent with larger funds paying more, depending on strategy and fees, he said.

SAC was told by the U.S. Securities and Exchange Commission last year that the agency is considering pursuing civil fraud claims related to alleged insider trading in two drugmakers by a former portfolio manager. Prosecutors say Cohen, the 56-year-old billionaire founder of Stamford-based SAC, discussed the stocks with the manager, the first time they linked him to a transaction at the center of an insider-trading case.

Martoma's bonus

SAC, like other hedge funds, doesn't disclose portfolio managers' pay. The firm has about 1,000 employees working out of offices from New York to Hong Kong, and 125 teams of traders and analysts.

"The program is intended to retain our most valuable resource, our investment professionals," Jonathan Gasthalter, a spokesman for SAC, said of the increase. He declined to comment on how much the firm is raising bonuses.

Mathew Martoma, the former SAC employee charged in November with what prosecutors called a record-setting insider-trading scheme that netted as much as $276 million for the hedge fund in 2008, received a bonus of $9.38 million in January 2009.

Martoma traded on inside tips about clinical trials of a drug intended to treat Alzheimer's disease, prosecutors said in their criminal complaint. Martoma allegedly advised Cohen to sell shares of Wyeth and Elan, the companies that were developing the drug, before negative news about its performance was announced.

Cohen Sued

SAC and Cohen were sued Dec. 21 by a group of Elan investors who claimed losses as a result of the alleged illegal insider trading in the drugmaker's stock.

Gasthalter said in November that Cohen and SAC are confident they acted appropriately and will continue to cooperate with the government's inquiry. Neither Cohen nor SAC have been accused by the government of any wrongdoing.

At least eight current or former SAC employees have been tied to allegations of insider trading while working at the hedge fund. Four have pleaded guilty to federal charges, including one who is serving a prison sentence.

SAC, which charges the highest fees in the hedge-fund industry at 3 percent of assets and as much as 50 percent of profits, has produced average annual returns of 30 percent since the firm's 1992 inception. Cohen is worth $9.5 billion, according to Bloomberg Billionaires Index.

Beating Peers

The hedge fund's SAC Capital International fund returned 12 percent last year through Dec. 21, a person with knowledge of the matter said this week. The hedge-fund industry returned an average 6.7 percent last year, according to data compiled by Bloomberg, while the Standard & Poor's 500 Index climbed 13 percent.

Clients, who account for about 40 percent of SAC's assets, have until the middle of next month to decide if they want to pull their money. They can only pull 25 percent of their investment every quarter after giving 45 days notice, meaning it would take them a year to redeem in full.

Citigroup's private bank is advising clients not to add money to SAC, two people with knowledge of the matter said last month. Societe Generale's Lyxor Asset Management unit has asked to withdraw its clients' funds from SAC, a person with knowledge of the situation said in December.

Blackstone Group is monitoring how the government proceeds with respect to SAC and will make a decision accordingly, J. Tomilson Hill, who oversees the New York-based firm's hedge-fund investments, said last month.